What Is the Difference between a Limit Order and a Market Order in the Context of the Bid-Offer Spread?
A market order is executed immediately at the best available price, meaning a buyer will pay the current offer price and a seller will receive the current bid price, crossing the spread. A limit order specifies a maximum buy price (or minimum sell price) and is placed within the spread, or at the bid/offer.
It may not execute immediately but avoids paying the full spread cost.
Glossar
Limit Order
Instrument ⎊ A limit order is an instruction to trade an asset at a specified price or better, providing the trader with precise control over the entry or exit cost, unlike a market order.
Market Order
Execution ⎊ A market order represents an instruction to execute a trade immediately at the best available price within the current order book, prioritizing speed of execution over price certainty.
Offer Price
Quote ⎊ The offer price, also known as the ask price, represents the lowest price at which a seller is willing to transact a specific quantity of a cryptocurrency, option, or financial derivative.
Order
Execution ⎊ An order, within cryptocurrency, options, and derivatives, represents a conditional instruction communicated to an exchange or trading venue to buy or sell an asset at a specified price or under defined parameters.
Maximum Buy Price
Valuation ⎊ The Maximum Buy Price, within cryptocurrency derivatives, represents the highest price a participant is willing to pay for an option contract, reflecting an assessment of the underlying asset’s potential future value and associated risk.
Large Market Order
Impact ⎊ A Large Market Order exerts immediate and significant market impact, rapidly consuming available liquidity at the best prices on the order book.